Life Time Fitness, Chanhassen, Minnesota, has sold the buildings in which 29 of its 115 fitness centers are located for $900 million and obtained long-term leases from the new owners, according to a Minneapolis Star Tribune report.
Eighteen of the buildings were sold to two undisclosed buyers, but the Star Tribune cites county records showing that San Diego-based Terraza 17 LLC purchased the St. Louis Park, Minnesota, club for $38.7 million.
Gramercy Property Trust Inc. announced on June 11 that it purchased the other 10 buildings from Life Time Fitness for approximately $300.5 million in a 20-year sale leaseback transaction. The acquisition totals 1.3 million square feet of space in 'major markets' across the United States. Gramercy purchased the Eden Prairie, Minnesota, club for $23.2 million, according to the Star Tribune.
Life Time Fitness referred to a Securities and Exchange Commission filing when contacted by Club Industry seeking additional information on the leaseback transactions, citing confidentiality agreements with the buyers.
Some of the leaseback transactions occurred June 10, the day Life Time Fitness returned to private operations as a subsidiary under LTF Merger Sub Inc. and closed its $4 billion sale led by affiliates of Leonard Green & Partners and TPG. Other investors in the purchase of the company included LNK Partners and Life Time Fitness CEO Baharam Akradi.
In an April filing with the Securities and Exchange Commission, Life Time Fitness said the potential $1 billion in proceeds from its leaseback transactions would help fund the merger, related transactions and related fees.
Specifically, the transactions would reduce Akradi's contribution to LTF Merger Sub, Inc. from $125 million in shares of Life Time common stock to $100 million. It would also reduce a portion of debt financing and equity financing funded by the equity investors.
Last August, Life Time Fitness announced plans to explore the conversion of its real estate assets into a real estate investment trust (REIT) as part of a strategic review. The company ceased exploration in March after concluding the risk of achieving value for shareholders was too speculative and the risk of pursing the conversion was too high.
At the time of the REIT exploration announcement, Life Time's board said a conversion of real estate assets could provide substantial benefits to the company and its shareholders. A Life Time Fitness spokesperson told Club Industry the primary business benefit of a REIT was to "create a more efficient capital structure."
Had Life Time Fitness followed through with the REIT, the conversion would have split the company into two publicly traded companies.
In late February, Life Time reported a 7 percent revenue increase to $1.291 billion in 2014 compared with 2013. The company ranked third last year on Club Industry's annual Top 100 Health Clubs list with 2013 revenue of $1.206 billion.